Under the Global Commerce Strategy (GCS), Canada is working to advance its trade interests by opening up new opportunities for Canadian exporters, investors and innovators. The GCS, which identifies the launch of Free Trade Agreement (FTA) negotiations with Morocco as a priority, includes an ambitious trade negotiation agenda, aimed at securing competitive terms of access in markets that offer significant potential for our products and expertise.

Economic analysis, government-to-government exploratory discussions and public consultations with domestic stakeholders reveal that an FTA with Morocco would generate a number of potential benefits:

1. Improve market access for Canadian exporters through the elimination of tariffs and the reduction of non-tariff barriers;

Enhance trade and investment opportunities across a broad spectrum of sectors, including agriculture and agri-food, natural resources and manufactured goods, as well as information and communications technology (ICT);

2. Enhance the stability and predictability of the investment climate in the region for Canadian investors;

3. Re-establish the competitive position of Canadian exports and investors vis-à-vis other competitors;

4. Yield benefits for Canadian service providers by enhancing market access and creating a more transparent, stable, and predictable business environment; and

5. Facilitate the movement of business persons between Canada and Morocco.

This economic analysis seeks to deepen our understanding of the Canada-Morocco commercial relationship. It provides an overview of the Moroccan market, including background information on the economy, on trade in goods and services, as well as the investment environment in Morocco. This information will help to outline the potential benefits of a free trade agreement between Canada and the Kingdom of Morocco.

As Canada's first such agreement with an African country, an FTA with Morocco could be the gateway to a deepened Canadian commercial presence in the Mediterranean region and in North Africa. An FTA could better position Canadian business vis-à-vis its competitors and provide increased opportunities for Canadian goods and services into this growing market.

Canada and Morocco have recently engaged in an exchange on the possibility of FTA negotiations. Following an initial meeting in Rabat on January 8 and 9, 2009, a small team of Moroccan officials met with their Canadian counterparts in Ottawa on June 1 to 3, 2009, to assess the scope and desirability of possible FTA negotiations.

Canada has enjoyed very good bilateral relations with Morocco since the latter gained independence in 1956. Like Canada, Morocco is a full member of La Francophonie. Canada has close ties with Morocco, which is a significant source of immigration. Approximately 45000 Canadians are of Moroccan origin, most of whom live in the Montreal region and contribute to the growing Maghreb community in Canada. Every year, thousands of young Moroccans come to study in Canada, mainly in Quebec universities.

Trade relations between Canada and Morocco have grown stronger and more diversified over the last decade. In 2009, bilateral merchandise trade totalled $513.4 million. Main Canadian exports consisted of cereals (primarily durum wheat), mineral fuels and oils, and vehicles (not railway), while principal Canadian imports were fruits and nuts (mostly citrus fruits), woven apparel, and electrical machinery.

Morocco is a growing market for Canada and an FTA with Morocco would level the playing field for Canadian companies, given Morocco's existing trade agreements with the U.S. and the EU. Trade between our countries is still largely concentrated around a few products: durum wheat from Canada and citrus fruit from Morocco. Morocco is a significant agricultural export market in the Middle East and Africa region, and durum wheat continues to be Canada's main export to Morocco, which consistently ranks as the second or third largest export destination for Canadian durum in the world. Both countries would gain from solidifying our trading relationship and diversifying export opportunities, including for agricultural products. According to Export Development Canada, potential is high for Canadian trade and investment opportunities in all sectors but most particularly in construction, environmental applications, light manufacturing, information and communication technologies, agricultural equipment, aerospace and rail.

Currently, Canada and Morocco do not have a Foreign Investment Promotion and Protection Agreement. An FTA with Morocco, including an investment chapter, will help open up the Moroccan market to Canadian investment and provide a more transparent and secure environment for investment.

As a trading nation, Canada negotiates trade agreements to sustain and enhance Canada's productivity and growth. With an estimated one in five Canadian jobs linked in part to international trade, there is little doubt that trade represents one of the main engines of the Canadian economy.

Given the uncertain outcome of the WTO Doha Round talks, several of Canada's key trading competitors (e.g. the United States and the European Union) are pursuing an aggressive bilateral free trade negotiations agenda. The intensified bilateral focus of key global traders has raised concern about the potential impact on Canadian exporters, whose competitiveness in established markets may be threatened by such preferential deals. Such concerns include the possible erosion of Canada's market share in countries where our competitors have gained preferential access and the potential for Canada to lose influence to shape international trading rules of the future. As such, industry stakeholders have urged the Government to pursue a more proactive FTA agenda.

In response to this rapidly evolving global trading environment, the Government is pursuing an ambitious bilateral and regional FTA negotiation agenda as outlined in the Global Commerce Strategy. Over the past year, Canada has ratified free trade agreements with the European Free Trade Association (EFTA) (July 2009) and Peru (August 2009). Canada has also signed FTAs with Colombia and Jordan, and successfully concluded FTA negotiations with Panama.

Canada is involved in ongoing FTA negotiations with the Dominican Republic, the Caribbean Community (CARICOM), and Central America countries, as well as with Korea, and Singapore. Canada launched negotiations for a Comprehensive Economic and Trade Agreement with the European Union and held the second round of negotiations in January 2010. Canada is also engaged in exploratory processes with India and Ukraine.

Canada is involved in a number of other trade-related initiatives. Canada has agreed to work with Japan to identify specific areas that will form the basis of a possible economic partnership agreement, and is renewing its trade and economic dialogue with Brazil. In addition, other means are being pursued to enhance economic relations with countries around the world, including FIPAs, science and technology agreements and air service agreements.

Morocco is an original member of the World Trade Organization (WTO) and its most recent Trade Policy Review (TPR) was completed in 2009. According to the latest TPR, Morocco grants all its trading partners at least most-favoured-nation (MFN) treatment. Morocco is not party to any of the plurilateral agreements concluded under WTO auspices but has, nevertheless, played an active part in the multilateral trade negotiations. Morocco contributed significantly to the agreement reached on trade-related aspects of intellectual property rights (TRIPS) and Public Health as the then coordinator of the countries of the African Group. Morocco is part of the negotiations to joint the Anti-Counterfeiting Trade Agreement (ACTA) and is taking an active part in the negotiations on services. Morocco also sees technical assistance and capacity building as key pillars for trade facilitation.Footnote 1

As of June 2009, Morocco has signed 58 bilateral investment treaties. Of those agreements, 36 have entered into force. As of June 2008, Morocco has implemented 45 double taxation treaties, including one with Canada, which entered into force in 1975. Morocco also has several air services agreements. In November 2009, delegations representing Canada and Morocco negotiated a new agreement to govern air transport between both countries. Once ratified, the new agreement, which is currently being applied on an administrative basis, will replace the Canada-Morocco bilateral air transport agreement concluded in 1975 and ratified in 1986.

Morocco has an association agreement with the European Union (EU), which was implemented on March 1, 2000, which provides for the elimination of tariffs by 2012. In fall 2008, Morocco was also granted 'advanced status' by the European Union, further lowering tariffs. This status was widened to include agri-food products as of December 2009, with immediate dismantling of tariffs for Moroccan products, and complete dismantling of tariffs for EU Products by 2020 (with the notable exception of wheat and durum wheat). Formal discussions to include services are expected to take place in fall 2010. Morocco has an FTA with the United States that entered into force on January 1, 2006, which provides for the elimination of tariffs by 2030.

Morocco has also concluded other FTAs with Tunisia, Egypt, Jordan (these four countries are signatories to the Agadir Declaration), the United Arab Emirates, the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland - EFTA) and Turkey. Morocco is also a member of the World Trade Organization (WTO) and the Greater Arab Free Trade Area (GAFTA).

i) Trade flows with the World

The Moroccan economy continues to develop and adjust to globalization. Significant economic reforms encouraged by international financial institutions are currently being implemented, including divestiture by the state. These reforms aim to modernize the economy, public infrastructure and capital equipment. Morocco is experiencing an economic boom in industry and services, with the country becoming a hub for call centres and computer services. The education sector is expanding, and there is strong potential for Canadian institutions, both Francophone and Anglophone. The franchise industry is growing in the region and Canada has great potential to increase its profile as a goods and services provider for Moroccan consumers. The tourism industry also experienced a significant boom, with over eight million tourists visiting the country in 2009, including a small number of Canadian tourists. Morocco was the fourth-largest recipient of foreign direct investment in Africa in 2008, after South Africa, Nigeria and Egypt.

In 2009, Morocco's merchandise imports reached $36.8 billion, and included mineral fuels and oils, machinery, electrical machinery, vehicles, and iron and steel. Morocco's top import sources are the European Union (52.4%; including France (15.5%), Spain (12.4%), and Italy (6.4%)), China (7.9%), and the United States (7.1%). Canada is Morocco's 20th largest import source, accounting for 1.2% of its merchandise imports. In 2009, Morocco imported $768.9 million worth of wheat products. Canada's share of those imports represented 35.6%, or $273.7 million of imported wheat.

In addition, the total Foreign Direct Investment (FDI) stocks in Morocco were estimated to be US$41.0 billion in 2008. Inward FDI flows to Morocco represented US$2.4 billion in 2008. Both FDI stocks and flows into Morocco have increased significantly since the 1990s.

Morocco is a growing economy - with 5.6% growth in GDP in 2008 and 5.2% in 2009. In 2008, Morocco's GDP reached $94.7 billion, with GDP per capita registering at $3,038. The services sector in Morocco is large and well developed, accounting for approximately 50% of GDP, and employing over 35% of the workforce in 2008. Manufacturing is also important representing approximately 13% of GDP. Manufacturing is dominated by clothing and textiles, yet the economy is diversifying and electrical and mechanical sectors are on the rise. Mining, energy and water account for nearly 9% of GDP. Tourism is the main source of foreign exchange in Morocco.Footnote 2

Morocco is taking important steps towards trade liberalization and plans to develop free trade zones. Electrical, mechanical and metallurgical industries benefit from the Tangier Free Trade Zone, which largely manufactures automotives for the European market.Footnote 3

While Morocco has achieved significant market liberalization, impediments to trade and investment remain in some areas. An FTA would address high tariff levels on key Canadian exports, import procedures, non-tariff barriers, as well as restrictions on cross-border trade in services and investment. An FTA would also offer the means to create mechanisms that allow for the early identification of issues and timely consultations to address specific issues, so as to minimize the risk of future trade barriers and promote joint cooperation.

FTAs include additional areas such as Rules of Origin, Customs Procedures and Trade Facilitation. Rules of Origin help ensure that preferential tariff treatment is accorded only to goods qualifying as originating in the territory of the FTA Parties whereas Customs Procedures are required to administer and enforce the rules of origin. Trade Facilitation provisions seek to lower transaction costs, reduce impediments to trade and simplify border-related requirements, procedures and formalities for the trading community.

Current Two-Way Merchandise Trade between Canada and Morocco

Bilateral trade in goods between Morocco and Canada was valued at $513.4 million in 2009, with imports of $ 138.3 million and exports of $375.1 million.

Morocco is already an important export destination for Canadian merchandise exports which were valued at $375.1 million in 2009. Canada's non-agricultural exports to Morocco for this period amounted to $108.2 million and included mineral fuels and oils, vehicles, pharmaceutical products, machinery, and paper products. Canadian agricultural and agri-food product exports to Morocco were valued at $266.8 million and included cereals (primarily durum wheat - 92.1% of agri-food exports, worth $245.8 million in 2009), vegetables (mainly lentils), dairy, eggs, and honey, and oilseeds. From 2007 to 2009, Canadian merchandise exports to Morocco grew by 54.0%.

In 2009, Canada's merchandise imports from Morocco were valued at $138.3 million with edible fruits and nuts (primarily citrus fruit) forming the majority of these imports. Other imports from Morocco included woven apparel, electrical machinery, knit apparel, footwear, and preserved food.

Morocco benefits from relatively low Canadian tariffs as Canada's overall applied Most Favoured Nation (MFN) rate is 5.5%. In addition, Morocco also benefits from Canada's General Preferential Tariff (GPT), which allows for reduced tariffs or duty-free access for certain imports from developing countries. In 2008, 83% of imports from Morocco entered Canada duty-free. Given that most goods imported from Morocco already enter Canada duty-free, there is unlikely to be any significant change in import competition for Canadian industries as a result of the tariff elimination commitments under a Canada-Morocco FTA.

Please see Annex A for more a detailed list of exports from Canada and Morocco.

Improved Access for Canadian Merchandise Export Interests

Canada will be seeking the elimination of tariffs on substantially all trade with Morocco. Morocco has relatively high tariffs in a number of areas of export interest to Canada. According to the WTO, Morocco has an overall applied MFN tariff of rate of 23% in 2007, with an average applied non-agricultural tariff of 20.0% and an average applied agricultural tariff of 42.9%. While Canada's goods market access objectives will take into consideration the fact that Morocco is a developing country, Canada will also seek improved market access commensurate with that achieved by the United States in its FTA with Morocco to ensure a level playing field for Canadian exporters.

Benefits to Canada from tariff elimination in Morocco are expected to be particularly significant in areas where Canadian exports face particularly high tariffs, including (average applied tariff in brackets): wheat (55% to 170%), pulses (17.5 to 49.0%), and heavy diesel trucks (35%). Average applied tariffs on product groups of general Canadian export interest include: animal products (105.3%); fruit, vegetables and plants (40.5%); cereals and preparations (43.7%); fish and fish products (46%); minerals and metals (17.8%); chemicals (14.7%); wood and paper products (32.3%); non-electrical machinery (7.5%); electrical machinery (12.1%); and transport equipment (16.7%), based on 2008 tariff rates.Canadian consumers and processors will also benefit from more affordable imports and manufacturing inputs from Morocco.

Please see Annex B for a comparative list of Canadian and Moroccan tariffs.

Technical Barriers to Trade

While difficult to quantify, Canadian industry cites non-tariff barriers, such as technical barriers to trade, as a significant challenge to achieving market access internationally. Indeed, as tariffs decline, non-tariff barriers have tended to become increasingly important challenges to trade. As a result, Canada will seek to ensure that technical barriers to trade are addressed effectively under an FTA with Morocco by: promoting non-discrimination; promoting good regulatory practices including transparency, the use of international standards or their relevant parts; and by seeking the creation of a mechanism to address specific technical barriers to trade. The effective management of non-tariff barriers will help to facilitate market access for Canadian industry and exporters.

Sanitary and Phytosanitary Measures

Canada's exports to Morocco consist primarily of agri-food products which are most vulnerable to the misuse of SPS measures as barriers to trade. Canada would attempt to address any SPS issues in parallel with FTA negotiations, such as current import restriction on Canadian beef and cattle. Canada will be seeking to establish a more effective means of communicating on SPS issues and of managing such issues on a timely basis to avoid trade problems in the future.

Canada's approach to services in the context of its FTAs is to seek a comprehensive chapter on cross-border trade in services that provides for transparency, predictability and secure market access for Canadian service providers.

In respect to rules governing the provision of services on a cross-border basis, Canada's approach is to establish a comprehensive set of rights and obligations applicable to the broadest range of services sectors. As part of its approach, Canada seeks to include provisions to improve market access through the application of a ratchet mechanism to bind future autonomous liberalization of nonconforming regulatory measures, increase transparency of domestic regulatory regimes through the use of a negative-list approach for the listing non-conforming measures as well as to address the importance of mutual recognition of professional qualifications for service providers.

With respect to market access, Canada seeks to provide and secure the broadest sectoral commitments. As in past agreements, Canada offers and maintains the ability of Parties to adopt or maintain full policy flexibility related to social services (health, public education) and culture. Canada also maintains policy flexibility to adopt or maintain non-conforming measures in certain sectors, including certain transportation services and natural resources.

As temporary entry of business persons is a priority for Canadian business, an FTA with Morocco will also include comprehensive provisions to allow for the entry and stay of a range of categories of business persons, including professionals.

Canada does not have a Foreign Investment Promotion and Protection Agreement (FIPA) with Morocco. Therefore, an investment chapter in an FTA would be crucial, and would be based on Canada's current FIPA model. Typically, a FIPA or an investment chapter of an FTA includes provisions on non-discrimination (National Treatment and Most Favoured Nation treatment), minimum standard of treatment in accordance with principles of customary international law (e.g. fair and equitable treatment and full protection and security), protection from expropriation without fair, adequate and prompt compensation, the freedom to transfer capital related to an investment and improved investor state dispute settlement provisions.

Sectors of interest for Canadian investors in Morocco include mining, tourism and agriculture. However, due to the international financial crisis, foreign direct investment in Morocco has fallen by over 40% in 2009 compared to a year earlier. Nevertheless, Morocco has been encouraging the international community to invest in the country, especially in the agricultural sector where it would make this kind of investment central to agricultural development.

With respect to market access, Canada is seeking to secure the broadest sectoral commitments and to ensure transparency and predictability for Canadian investors through the use of a negative-list approach for the listing of non-conforming measures, as well as the application of a ratchet mechanism to bind any future autonomous liberalization of nonconforming regulatory measures. As in past agreements, Canada will maintain the ability of Canadian governments to adopt or maintain full policy flexibility related to social services (such as health and public education) and culture. Canada will also maintain its policy flexibility to adopt or maintain non-conforming measures in certain sectors, including certain transportation services and natural resources.

Labour

Recognizing that social progress should go hand-in-hand with economic development, Canada is seeking to negotiate a principles based Labour chapter within the FTA, as well as a comprehensive parallel Agreement on Labour Cooperation. The latter would be a complementary stand-alone international treaty.

The Labour Cooperation Agreement (LCA) would include commitments to reflect international labour standards in domestic legislation, an undertaking to enforce these laws in an effective and transparent fashion, and mechanisms for the public to raise concerns and for independent dispute resolution.

More concretely, the LCA would seek mutual commitment by both countries to ensure that their laws respect the International Labour Organization's (ILO) 1998 Declaration on the Fundamental Principles and Rights at Work. The Declaration includes: the right to freedom of association, the right to collective bargaining, the abolition of child labour, the elimination of forced or compulsory labour, and the elimination of discrimination.

To further protect the rights of workers, Canada is seeking to include provisions to ensure: acceptable protections for occupational health and safety, acceptable minimum employment standards such as minimum wage and hours of work, and the protection of migrant workers' rights. A non-derogation clause would also be included.

In addition, such an agreement may seek to include commitments to implement capacity building programs, commensurate with the availability of resources of each Party, as well as independent, binding and enforceable dispute resolution mechanisms that are fully accessible to Canada, with or without provincial participation, upon the coming into force of the Agreement. Negotiators may also explore the possibility of including additional commitments in regards to the ILO's Decent Work Agenda.

The Labour Chapter in the FTA would outline the labour objectives of the parallel LCA.

Environment

Recognizing the importance of mutually supportive trade and environment linkages, Canada is seeking to negotiate a comprehensive Agreement on the Environment parallel to an FTA, and a principles-based Environment chapter within an FTA.

The parallel Agreement on the Environment would commit the Parties to pursue high levels of environmental protection and to strive to continue developing and improving their environmental laws and policies. It would also include obligations that commit the Parties to enforce domestic environmental laws effectively and not to derogate from those laws in order to encourage trade and investment. Further, Canada would seek to include provisions related to public information and participation, cooperation, and dispute settlement. While the Agreement on the Environment would be negotiated parallel to an FTA, the former would be a separate, stand-alone international treaty. As a best practice to ensure that the likely significant environmental impacts of trade agreements on the Canadian environment are taken into consideration, Canada will conduct a strategic environmental assessment of the Canada-Morocco FTA.

The principles-based Environment chapter would highlight the importance of environmental conservation and protection and the promotion of sustainable development. It would further outline the relationship between the trade and environment agreements, and point to the objectives of, and obligations in, the latter.

Key environmental provisions within the preamble, objectives, general exceptions, and investment chapters of an FTA would further ensure that the flexibility to establish and maintain environmental policies and measures is not adversely affected by an FTA with Morocco.

Government Procurement

Canada will seek to negotiate a comprehensive Government Procurement Chapter that will provide transparency, predictability and secure market access for Canadian goods and services, and suppliers of such goods and services. Government Procurement Chapters generally include provisions which require Parties to conduct their government procurement in a fair, open, transparent, competitive and non-discriminatory manner. Chapters also include a bid challenge mechanism that Canadian suppliers can use if they believe a procurement was not conducted in accordance with the obligations in the Chapter.

The inclusion of a Government Procurement Chapter in an FTA with Morocco would provide a level playing field for Canadian companies competing in the Moroccan market against other foreign competitors that already benefit from similar agreements with Morocco, such as the United States.

Exceptions

The Exceptions Chapter sets out agreed upon exceptions to the obligations contained in the trade agreement. These exceptions are permitted in order to ensure that the Parties to the agreement maintain policy flexibility in areas that the Parties recognize as legitimate. Canada generally seeks to include the following exceptions: General Exceptions; National Security; Taxation; Disclosure of Information; Cultural Exemption; and WTO Waivers.

Other

An FTA would also seek to ensure that both Canada and Morocco maintain measures to proscribe anti-competitive business conduct and take appropriate action, so that the benefits of trade and investment liberalization are not undermined. FTAs also contain procedures for the avoidance and settlement of disputes.

In addition, an FTA provides scope to discuss other areas such as telecommunications, electronic commerce, and intellectual property, which in turn can promote investment and innovation and support market access gains in many sectors of the economy.

In October 2009, the Government of Canada embarked on a comprehensive consultation process with the Canadian public, provinces and territories, businesses and non-governmental organizations to seek input and to help define the scope of a potential free trade initiative with Morocco.

Although modest in numbers, all comments received from Canadians have indicated strong support for an FTA. Provinces and territories were also consulted and did not oppose an FTA with Morocco.

Further to the formal public consultations process, Canadian business continues to express interest in engaging in FTA negotiations in Morocco: Canadian agri-food exporters (particularly wheat and pulse exporters) and industrial exporters have urged the Government to consider the merits of entering free-trade discussions with Morocco.

The Government of Canada will continue to consult Canadians on the proposed free trade initiative with Morocco to ensure that stakeholders remain apprised of developments and that their interests and concerns are understood and taken into account.